Unemployment in euro zone higher than expected

REUTERS AND AFP , BRUSSELS AND FRANKFURT, GERMANY

Unemployment in the euro zone jumped more than expected in February to 8.5 percent, data showed yesterday, underlining the speed of economic deterioration a day before the European Central Bank (ECB) meets on interest rates.

Unemployment in the 16 countries using the euro rose from January’s 8.3 percent of the workforce, Eurostat, the EU’s statistics office, said.

Economists had expected a level of 8.3 percent for February.

The number of jobless in February rose by 319,000 to 13.486 million in the euro zone and by 478,000 to 19.156 million in the whole of the 27-nation EU.

Among euro zone members, Ireland and Spain saw the biggest increases in unemployment in February, both up 0.7 percentage point to 10.0 and 15.5 percent respectively.

Economists say unemployment is a lagging indicator, showing with a delay the effects of processes well under way in a sharply slowing global economy.

But the speed of the rise in unemployment and its negative effects on demand are likely to add pressure on the ECB, which meets on interest rates today, to cut borrowing costs by 50 basis points to 1 percent.

It is “already clear to everyone that the refi [refinancing] rate will go lower but not much lower” than the current level of 1.50 percent, UniCredit chief eurozone economist Aurelio Maccario said.

“The focus has now shifted to the type of other unconventional measures the ECB is ready to embark on,” he said.

Efforts to pull the 16-nation eurozone out of its first recession are set to take the ECB further into murky waters called quantitative easing, essentially the creation of money to boost economic activity.

The US Federal Reserve, Bank of England and Bank of Japan have blazed a trail by unveiling schemes costing trillions of dollars to buy government and corporate debt and high-risk, mortgage-backed securities.

The ECB, however, is a pragmatic bank and has focused on the eurozone banking sector, which handles business financing on a much greater scale than elsewhere.

The bank’s first move is almost certain to be a doubling of the maturity of refinancing operations, which provide unlimited funds to commercial banks at fixed rates, to one year from six months.